MANILA, Philippines (AP) _ Philippine Airlines said today it has been readmitted to the International Air Transport Association after settling its debts with the airline industry body.

``PAL has now returned to the fold of the international aviation community,'' airline president Avalino Zapanta said in a statement. ``This is a major step in our inexorable march to full recovery.''

The airline was suspended from the IATA's clearing house in September 1998 after it failed to pay debts of $32 million to other airlines.

Its suspension from the IATA was a serious blow to the ailing carrier because it effectively severed its links with the association's 198 member airlines. Passengers with Philippine Airlines tickets were unable to transfer to other airlines.

Passengers traveling from Manila to New York, for example, had to purchase separate tickets on the airline and a second airline and manually recheck their baggage since Philippine Airlines does not fly beyond the U.S. West Coast.

At that time, the airline was near bankruptcy and struggling to get its creditors, owed $2.2 billion, to accept a recovery plan.

PAL said its debts to IATA airlines were settled earlier this month.

The terms for PAL's reinstatement also included a $12 million security deposit, which is repayable after a year if the airline meets all its IATA debt payments, or six months if it is a net creditor under the association's clearing system over that period. The move was approved under PAL's rehabilitation plan.

After a disastrous 1998, which saw the airline nearly close, PAL has been slowly recovering, posting a net profit in the first quarter of the financial year which began in April after several years of heavy losses.